IMF approves $12 billion loan to salvage Egypt’s economy

CAIRO (AP) — The International Monetary Fund said on Friday that its executive board has approved a three-year bailout totaling $12 billion to Egypt, to support the country’s ailing economy — a move intended to restore investor confidence and raise the country’s foreign reserves. Even with the loan, economic challenges remain ahead.

The approval comes almost a week after the Egyptian government floated its currency and raised fuel prices in order to qualify for the loan. These painful measures earned praise from the IMF and the international business community, but caused price hikes for an already frustrated cash-strapped population, with President Abdel-Fattah el-Sissi now risking a serious political backlash.

The IMF made the announcement on Friday and said the loan aims to help Egypt “restore macroeconomic stability and promote inclusive growth.” It added that Egypt will receive a first installment of $2.75 billion immediately.

Days earlier, Christine Lagarde, the IMF chief, described Egypt’s reform program as “ambitious” and said it will put the country on a “sustainable path and achieve job-rich growth.”

Tarek Amer, the head of Egypt’s Central Bank, was quoted by the state-run MENA news agency as saying that the first installment has arrived at the bank and increased foreign reserves to $23.5 billion. Egypt had $36 billion in reserves before the 2011 uprising. The government announced earlier that it’s targeting an additional $7 billion loan annually from other lenders in order to secure over 30 billion of funds needed in the coming three years.

Years of unrest following the ouster of longtime autocratic President Hosni Mubarak in 2011 left Egypt’s economy in shambles. The vital tourism sector dried up over fears of terrorism, overseas remittances dropped because of low oil prices, and Suez Canal revenues diminished because of a decline in global trade. Investment and business activity also stalled, with inflation hitting 14 percent and unemployment 13 percent while the percentage of the unemployed youth is around 30 percent. Nearly half of the population is below poverty line; the budget deficit currently stands at nearly 12 percent of gross domestic product while the current account deficit is at almost 7 percent.

A country with at least 90 million people, Egypt is heavily dependent on imports, not just of staple food items, but industrial components and raw materials to keep the manufacturing sector going. Much of the imports needed by the private sector are financed by dollars bought on the black market.

Before devaluation, a thriving black market led the dollar to surge to a rate of 19 Egyptian pounds — compared to 8.8 in the banks.